Intelsat’s slow-to-orbit IS-33e proving slow to attract customers

A thruster glitch cost Intelsat-33e extra time to reach orbit, necessitating the use of a backup system. The delay, coupled with a more meticulous customer set than the previous Epic satellite, means Intelsat will need more time to fill its capacity. Photo: Intelsat

WASHINGTON — Intelsat-33e, which took longer to enter service because of a broken thruster, is now taking longer than expected to fill with paying customers.

While customer acquisition for Intelsat’s second Epic-series high-throughput satellite (HTS) is proving slower than the first, the satellite fleet operator says the disparity is more a reflection of different customer sets for the two satellites than of market appetite for high-throughput capacity.

Speaking to investors July 27, Intelsat CEO Stephen Spengler said as the operator nears the completion of its initial fleet of Epic satellites, it will likely use in-orbit servicing to delay decisions on other fleet replenishment.

Spengler also reaffirmed that despite its merger with low-Earth orbit startup OneWeb falling through, the two companies are still collaborating on many fronts, especially mobility.

Pacing the Epic uptick

Intelsat-33e, the operator’s second Epic satellite, is taking longer to fill than its predecessor, Intelsat-29e, but Intelsat attributes that to differences in geography and customer sets. Spengler said Intelsat-33e is positioned to serve greater numbers of mobile network operators and enterprise customers such as internet service providers and remote networks, which take longer to commit.

“We view this as not an indication of demand, because we feel that demand is strong and the performance of the satellite is proving itself out quite well,” he said. “But we do find that in dealing with those types of service providers in that part of the world, it’s a more complicated process in terms of building that customer business case and moving forward with the project. Having said that, the pipeline is very active; we are engaged with a number of mobile operators as well as enterprise network service providers.”

The C-, Ku- and Ka-band satellite covers Europe, the Middle East, Africa, and some of the Asia-Pacific region.

Intelsat’s first Epic satellite, Intelsat-29e, launched in January 2016 with a number of pre-committed customers, including Panasonic Avionics, Gogo, Harris CapRock and Latin American network operator Axesat. The satellite covers the Americas and the North Atlantic with C- and Ku-band HTS capacity.

Compared to aeronautical and maritime customers, where satellite connectivity is often the only choice, mobile and enterprise network operators typically have more options such as fiber, cell towers or microwave. Spengler said this diversity of choices, along with the balance of reaching customers in urban, suburban and rural areas, lengthens decision timelines. Still, Spengler described the satellite’s market development as more of a “timing matter overall.”

“We expect over time to catch up, and we feel comfortable with our business plan for IS-33e,” he said.

Another factor weighing into customer acceptance was a thruster malfunction that delayed the satellite’s entry into service from late 2016 to this January. Intelsat filed an insurance claim of $78 million for an undisclosed loss of service life on the Boeing-built satellite. In a July 27 filing to the U.S. Securities and Exchange Commission, Intelsat said it is continuing to investigate the cause of the thruster anomaly.

Intelsat’s third Epic payload, Intelsat-32e, launched in February on DirecTV Latin America’s Sky Brasil-1 satellite. The fourth, Intelsat-35e, launched July 5 on a SpaceX Falcon 9 rocket. Intelsat has one more Epic satellite launching this year: Intelsat 37e on an Arianespace Ariane 5 rocket. Spengler said that mission is scheduled for August or early September. Horizons-3e, a joint satellite with Sky Perfect Jsat in Japan, is scheduled to launch on an Ariane 5 in 2018, completing Intelsat’s HTS footprint globally.

In-orbit servicing and future satellites

Intelsat is at the beginning stages of planning three new satellites, Spengler said, including starting replacements for the operator’s North American fleet. Replacements for cable distribution satellites over North America are “relatively inexpensive satellites compared to Intelsat Epic satellites,” he said, but Intelsat, but does want to use in-orbit servicing to hold off on some capital expenditures.

“The use of the MEVs [Mission Extension Vehicles] has multiple benefits,” Spengler said, referring to Orbital ATK’s planned satellite-servicing spacecraft for which Intelsat is the first customer. “It allows us to extend revenues for customers in various marketplaces. It does allow us to defer capex decisions, so we do defer capex, but we also get to defer some decisions where we may want to wait for technology to develop to build those replacement satellites at the next stage in the technology cycle.”

Orbital ATK’s first MEV is scheduled to launch on Proton Medium, a smaller variant of International Launch Services Proton rocket, in 2018.

Still friends with OneWeb

Spengler said Intelsat doesn’t view OneWeb, which it invested in early on, as a competitor despite the inability to close a merger two months ago. Intelsat bond holders were unable to agree on a debt exchange that OneWeb’s largest investor, Japanese telecom conglomerate SoftBank, made conditional to the merger. Intelsat’s debt stood at $14.5 billion as of March 31.

Agreements put in place before the merger attempt enable Intelsat and OneWeb to continue working on interoperable systems between low-Earth orbit and geosynchronous orbit, Spengler said, including a new terminal that will work with satellites in both orbits. Intelsat also has the right to market OneWeb services in certain markets.

“With Softbank we have an agreement where we have distribution rights and exclusivity in a couple of key verticals, which include[s]…both aeronautical, maritime and other types of mobility services,” Spengler said. “It includes oil and gas, it includes government services, and so that agreement exists. We are working very closely with SoftBank and OneWeb on developing go-to-market strategies in those verticals and bringing forward solutions that incorporate both LEO and GEO-type services.”

Backlog

Spengler said certain broadcast-focused satellites that have launched in recent years, namely Intelsat-30, 31, 34 and 36, are starting to burn off some of the operator’s backlog. Intelsat’s backlog decreased by $300 million over the three months ended June 30 to $8.2 billion.

Spengler said media and broadcast comprise about 65 percent of Intelsat’s backlog, followed by 25 percent network services and 10 percent government. Some pricing pressure on network services also contributed to the decline, he said.

Intelsat’s revenue for the quarter ending June 30 was $533.2 million, down $9 million year over year. Net loss for the quarter was $23.8 million, compared to second quarter 2016’s net income of $116.4 million. Media revenue, which comprised 42 percent of total revenue, was up 5 percent year over year to $222.2 million. Network services decreased 6 percent to $214.9 million over the same time frame, and government revenue dropped 8 percent to $86 million.